What to consider when planning for retirement

Key aspects that influence retirement decisions

Whatever you want to do when you retire, the better prepared you are, the more rewarding it will be. It’s important to assess the key aspects that will influence your retirement, as the decisions you make can have a real impact on your savings. There are some important considerations to think about.

Timing
Drawing savings too early is likely to result in lower returns and/or lower lifetime income.
Drawing savings later may not result in higher returns – this depends on how you invest and use your savings.

Capital requirements
Many people withdraw capital from their pension savings not because they ‘need’ it but because they can, and they end up just retaining it in a less tax-efficient environment.
Meeting income needs from capital could be extremely efficient – it may even be necessary.

Income requirements
There are choices to make between generating income now versus providing for your future.
You may also continue earning some income during retirement through paid work, business ventures or even lucrative hobbies.
Your income needs are likely to vary over time, and some expenses are fixed while others are variable. Most critically, long-term care can prove expensive.
Your income preferences are also key – having a known stable income source may be preferable to having a higher but less stable income.
Generating surplus income is inefficient from a tax perspective.

Attitude to risk
This is the trade-off between relative safety (which you may choose out of concern) and taking risk (which you may choose with an aim of achieving growth). Your attitude may also change as you accumulate wealth (because you have more to lose) and as you get older (because you have less time to recover if your investments fall in value). But risk is never completely eroded – even with cash or an annuity.

You also need to ask yourself some of the following questions:

What is my life expectancy, and how much money will I need to achieve my retirement plans?
How could my income and capital needs change in the future?
Do I have an effective plan to leave a financial legacy?
How much money would my spouse/partner need if I die before them?
How might I protect against the effect of inflation?

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